financial crisis presentation

financial crisis presentation - FINANCIAL CRISIS A combined...

Info icon This preview shows pages 1–7. Sign up to view the full content.

View Full Document Right Arrow Icon
FINANCIAL CRISIS A combined currency and banking collapse, leading to high interest rates, capital flight, and a disastrous contraction of the real economy. A currency collapse is the abandonment of a fixed exchange rate. A banking collapse occurs when high interest rates cause a bank run and banks default.
Image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
COMMON PRECONDITIONS: Financial liberalization Fixed exchange rates Large capital inflows Weak domestic banks and firms
Image of page 2
Collapse of currency value Massive capital outflow Overextension of banks and firms Rapid rise in interest rates Attempt to stabilize Interest rate risk Attempt to flee Loss of investor confidence Exchange rate risk
Image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Causes of Financial Crisis FC results from three fundamental economic problems: Exchange Rate Policies Capital Flows Bank Weaknesses Brazil Real & Saudi Riyal Source: Wikipedia.org
Image of page 4
Currency Overvaluation Fixed XR’s conflict with real rates of inflation Investors eventually catch on to discrepancies between economic indicators and currency value Abandonment of commitment to fixed exchange rate after investors pull out Collapse due to overvaluation causes overshoot in XR adjustment, yielding a crisis
Image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Speculative Attack Governments try to hide insolvencies in its currency in order to keep investors confident
Image of page 6
Image of page 7
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern